PARIS — Switzerland’s competition regulator said on Wednesday it would authorize Swatch Group AG to reduce its deliveries of components to rival watchmakers in 2012 while it investigates the company’s plans to phase out its supply of parts entirely.

Swatch Group chief executive officer Nick Hayek has stated repeatedly his intention to wean other brands from their dependence on ETA, the Swatch Group subsidiary that supplies watch movements to most of the industry, in the interests of promoting research and development.

The Swiss Federal Competition Commission (Comco) said it opened an enquiry on June 6 into whether shutting off supply to third parties would constitute an abuse of Swatch Group’s dominant position, in violation of competition law. It expects to complete its probe in the second half of 2012, said Comco deputy director Patrik Ducrey.

“Swatch Group is ready to find an amicable solution in the form of a staggered reduction of deliveries,” Comco said in a statement.

Biel-based Swatch Group, whose 19 brands run the gamut from luxury Breguet timepieces to affordable plastic Swatch watches, will be allowed to reduce its supply of mechanical movements in 2012 to 85 percent of the amount purchased in 2010, and its deliveries of assortments to 95 percent of the quantities acquired in 2010.

Swatch Group issued a brief statement confirming the launch of the probe.

 

“This investigation was initiated by Swatch Group and should determine which mutually agreed solution is available to allow Swatch Group to reduce gradually its deliveries of mechanical watch movements and assortments to third parties, in the interest of the entire watch industry,” it said.

Supply shortages are one of the main challenge facing the world’s biggest watchmaker this year after sales hit a record 6.44 billion Swiss francs, or $6.19 billion, in 2010, up 18.8 percent in organic terms versus 2009 and up 8 percent compared with 2008, its previous record year.

Claudia Lenz, analyst at Bank Vontobel, said the planned reduction in deliveries in 2012 would leave Swatch Group with 18 percent more capacity to supply its own brands.

“This would be roughly in line with our own growth estimates for Swatch Group and would enable them to achieve their growth targets as expected,” she said.

Through ETA, the world’s largest movement manufacturer, Swatch Group accounts for 70 to 80 percent of total market share in the watch movement market in volume terms, according to a Bernstein Research study published in March. It identified Rolex, Bulgari, LVMH Moët Hennessy Louis Vuitton’s Tag Heuer brand and Frank Muller as major customers.

In an interview with WWD at the Baselworld trade show in March, Hayek said he was confident of fixing what he described as “an unhealthy situation.”

“We need competition that invests also in research and development, and in the production, because otherwise the industry is dying. It’s in the interest of the Swiss industrial landscape to have many of the competitors invest,” he argued.

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